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Low-Risk vs High-Risk Merchant Accounts

The type of merchant account your business uses will affect its long-term finances

Common High-Risk Industries
  • The alcohol industry
  • The gambling industry
  • The cryptocurrency industry
  • The financial services industry

What Is A Merchant Account?

A merchant account is a special type of business bank account that allows you to securely accept credit and debit payments. It acts as a middleman between your business's bank and the bank your customer uses to make their card purchases. 

 

A merchant account is needed to facilitate the movement of money from your customer's bank account to your bank account so, if you want to take electronic payments, you need to get yourself a merchant account.

Low-Risk vs High-Risk Merchant Accounts

If your business is just starting out, or you want to move into accepting electronic payments, you've probably heard that you need a merchant account. You may have also heard that there are different types of merchant accounts available to businesses, each with its own benefits and drawbacks. 

 

If you need a merchant account, you need to apply for one. Unlike when you open a normal bank account, you will only be told what charges you need to pay after your application has been reviewed.

 

This is because the provider you make your application to will perform a check on your business to work out its risk. Unfortunately, there's only so much you can do to influence the check's outcome, as the risk level is largely based on the industry you're in. After the assessment is completed your business will be deemed to be in either a high-risk or a low-risk category. 

Which Category is my Business in?

The category your business is placed in will influence the charges you pay in fees, with high-risk accounts being more expensive. The fees are more expensive because your merchant account provider needs to cover the heightened risk that they are taking.

 

A high-risk industry is regarded as such due to the likelihood that it will be exposed more to operational or regulatory risk. There are a lot of industries that fall under this description but there are a few of the more common ones.

It's not just the industry your business is in that will affect whether it's deemed to be high risk. Other assessments are also carried out to determine risk, so the reason for being placed in a high-risk category could be because of their industry, the way their customers tend to pay, or the size of a typical transaction. 

 

Some of the other factors providers consider when assessing risk are: 

 

  • Your average transaction size
  • The incidence of fraud within your industry
  • Your refund ratio
  • Your general financial stability

 

Whatever the reason, high-risk merchant accounts come with generally more baggage than their low-risk counterparts.  A low-risk merchant account will typically be offered to a business that operates in an industry outside the high-risk list, deals with a lower average transaction size, has fewer incidences of fraud, and sends out a low number of refunds.

 

Reduced risk of financial turbulence within a business is often reflected in the fees the business pays its payment processor. There's also more flexibility with who to choose for these businesses, as many processors are happy to offer them an account if their business is low-risk. 

 

However, while low-risk businesses can access lower fees and a broader choice of merchant accounts, the accounts they have will also come with some drawbacks. The processor won't expect anything out of the ordinary, so if the business concerned suddenly starts making a large number of large transactions, or experiences an influx of refund requests, the merchant account could be frozen.

  

Despite their name, high-risk merchant accounts do have some benefits over low-risk accounts. If, for example, the typical transaction a business processes is large, it'll likely be deemed as high risk, but this means large transitions wouldn't be flagged as suspicious, whereas they would with a low-risk merchant account.  

 

That said, there are higher fees you need to pay if you have a high-risk merchant account, and it can be tricky to find a processor that will accept your application, as many avoid high-risk businesses. 

FAQs: Your Merchant Account Questions Answered

A merchant account is a special type of business bank account that allows you to securely accept credit and debit payments. It acts as a middleman between your business and the bank that provides your customers with the credit or debit cards they use to make their purchases. 

If you want to take payments electronically, you need a merchant account. A merchant account is needed to facilitate the movement of money from your customer's bank account to your bank account.

High-risk merchant accounts are offered to businesses that operate in a way that payment processors deem as high-risk. This could be because of their industry, the way their customers tend to pay, or the size of a typical transaction. 

 

Whatever the reason, high-risk merchant accounts come with generally more baggage than their low-risk counterparts.  

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Our Partners
  • Barclays Bank PLC
  • FirmEU BV
  • Fiserv (Europe) Limited
  • Handepay Limited
  • Independent Merchant Services Limited
  • Inspire Payment Services Limited
  • ResQ Limited
  • SumUp Payments Limited
  • Take Payments Limited
  • The Redwood Group and Associates Limited
  • Tide Platform Limited
  • WorldPay (UK) Limited
  • Yotta Digital Ltd
Our Products
  • Business Accountancy
  • Business Epos Systems
  • Business Telephone Systems
  • Commercial Waste Collection
  • Digital Marketing
  • Fleet Tracking
  • Invoice Finance
  • Merchant Accounts
  • Website Design
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